Doubt and Economic Disruption Cloud the Growth and Inflation Outlook, Policymakers and Officials Say

0:00 CNBC is on assignment in Washington DC as the World Central Bankers

0:04 and ministers of finance gather

0:06 for the International Monetary Fund and World Bank

0:09 Group spring meetings where the volatile

0:11 geopolitical backdrop and cuttingedge tech like

0:14 artificial intelligence dominates and influences debate

0:18 on the outlook for the global economy.

0:28 A big theme in discussions here in Washington DC is about the impact

0:32 that global uncertainty is having on the outlook for growth and inflation.

0:36 I look the problem here is that neither the duration nor

0:40 the lasting impact on sort of energy infrastructure is fully clear to everyone.

0:46 If once you get that picture clearer,

0:48 it's much easier to understand how to deal with it.

0:51 But the re this whole thing started and the countries

0:54 in the Middle East are the most impacted for obvious reasons.

0:57 A country like Iraq which is an oil producer has no place to send

1:01 its oil and no storage unlike some of the other countries in the Middle East.

1:05 So they're having to close down oil wells.

1:07 That's one kind of impact.

1:08 Uh countries like Bangladesh are net oil

1:11 importers and gas importers different kind of impact.

1:14 So this is an asymmetric impact depending

1:17 on both how close you are to the conflict

1:19 but also whether you're a oil importer exporter

1:21 you have storage you've got fiscal room or not.

1:24 So what I'm trying to do with all our clients is to say

1:26 that look you're going to have an impact on growth you're going to have

1:29 an impact on inflation make sure you get the inflation under control before

1:33 you start worrying too much about getting

1:35 back into worrying about the growth side.

1:36 You got to make sure that this gets managed.

1:39 I don't think the disruption is something that even if

1:41 there's a ceasefire that persists and you know supply shortages

1:46 the hormone strait opens up it'll still take a few

1:48 months for things to come back to where they were.

1:51 So we have to prepare for a few

1:53 months of some destabilization for these countries

1:56 and what we put together is a war chest of three different things.

2:00 One being immediate access to liquidity.

2:03 Thanks to our crisis toolkit, our countries can get about 20 to 25 billion

2:08 immediate access like literally tomorrow morning without new approvements.

2:12 If this continues for five or 6 months,

2:14 we got to repurpose some projects, look at some new projects in that area.

2:19 We could get that number from 2025 to go to 50 or 60.

2:23 If it continues beyond that, we're going to start looking at our balance sheet

2:26 and the headrooms we have to do more

2:28 things with trade finance and guarantees and projects.

2:31 and then we could get to 80 to 100 billion over 15 months.

2:35 And in context in COVID, the bank put 70 billion to work.

2:39 So I'm preparing a kind of a a war chest of three

2:42 types and three phased things to be able to cater to this.

2:46 The policy makers at the meetings this week have

2:48 been talking about the compounding impacts of crisis after crisis.

2:52 Yes.

2:52 As you look at emerging markets

2:54 and developing economies that have faced these crisis,

2:58 how evident is you that Trump is playing with fire the longer this goes on?

3:03 But in reality, the global economy was actually more resilient and people

3:07 were giving it credit for based on that crisis after crisis conversation.

3:11 If you think back pre this conflict, uh economic growth was persisting to be

3:15 around 3% with global inflation around 3%.

3:19 That's actually not a bad number for all the things that people

3:22 talk about from co to geopolitics to tariffs and the like.

3:26 So I actually think we're getting less

3:27 credit for our economies than they deserve.

3:29 And a lot of the emerging markets which I grew up

3:32 in and you understand well are markets

3:34 that have learned lessons from prior crisis.

3:37 Their central banks have done a terrific job of managing their economies.

3:41 So the factor is fiscal space is

3:44 challenged in most countries both developed and developing.

3:48 That's the part that I worry about.

3:50 So even the toolkit we've put together to respond.

3:53 One of the things I'm telling everyone is make

3:55 sure you do no harm to your long-term fiscal circumstance.

3:59 Try and keep the things you do targeted, temporary,

4:03 and kind of very clearly transparent so you could switch them on and off.

4:07 So let me stress perhaps two things in this unknown environment.

4:11 First starting position is better than

4:13 in 2022 because we have much less inflation.

4:16 We have won the battle against inflation and we have

4:20 much less inflationary pressures on demand, supply or on wages.

4:26 And the second thing is perhaps to precise not exactly how we will act.

4:30 This is too early to tell, but how we think.

4:34 We as central banks are not responsible for the first round effect.

4:37 energy prices or some prices of products

4:40 which are directly impacted like plastics, fertilizers, alium and so on.

4:46 But we are responsible to prevent possible second round effect to services,

4:52 manufactured goods and wages.

4:55 So let me be extremely clear about the KPI we will look at.

4:59 We will look at wages.

5:01 We will look at inflation expectations of households and firms.

5:05 do they remain anchored and we will look at underlying inflation so far if

5:11 I look at the last figures published yesterday uh in the UR headline inflation

5:18 increased significantly in March 2.6% this is a first round effect of energy

5:23 but core inflation without energy and food

5:27 remained limited and even slightly decrease at 2.3%.

5:32 So we will act without hesitation if needed and when needed.

5:38 But we are not in a precipitation mode.

5:41 We need to reach a sufficient level of data about the effect

5:47 of on underlying inflation second round and also

5:51 the negative effect on demand and growth.

5:54 The war in the Middle East is an adverse shock.

5:56 Um it's an adverse supply shock where inflation expectations have come up.

6:01 We have already seen inflation in number of countries that have come up.

6:06 It's particularly in oil and gas and energy more broadly at the moment.

6:10 But we also expect food prices to go up and so central banks are

6:14 very focused on what they have to do

6:16 in order to conflate contain inflationary pressure.

6:19 Oh yes, war would to end quickly.

6:21 Then the impact is limited both on inflation and growth for most countries.

6:27 If it is longer, the impact on inflation is what would

6:30 worry me most because if it lasts couple of months more,

6:34 if the straight of homes is blocked or half blocked,

6:38 then we're going to have inflation that goes up

6:40 more than 1% maybe one and a half% this year.

6:44 Uh and if it's even worse, it's lasts longer,

6:46 then inflation would go up 2 and a half%.

6:49 that obviously would trigger uh probably stackflation

6:53 and that's bad news for the world

6:55 and so we can only hope that a diplomatic solution can be found.

7:00 We live in a world uh where we have a lot of challenges.

7:04 So the last challenge of war in the Iran is one of them

7:08 and it's quite uh difficult to assess uh what monetary policy will have to do.

7:15 So during our March meeting uh we assessed

7:17 that at that time we didn't have enough information uh

7:21 to to know or to assess whether to actu or not

7:25 whether it will be necessary to to hike or not.

7:29 So what we decided is that we will look thoroughly the the data that uh

7:34 will come uh by the end of April when we have next monetary policy meeting.

7:40 uh then uh what we do what we did is that we produced a set of scenarios

7:46 according to which uh we will uh act

7:49 or not act uh in regards to monetary policy.

7:53 So according to baseline scenario uh we will not have to act in the monetary

7:59 policy stance because uh we assumed uh

8:03 this uh based on scenario that uh this supply

8:07 shock will will will go as fast as it came but I don't know whether

8:13 this scenario is realistic or not we'll see in next couple of weeks but for sure

8:19 by June meeting uh we will have a lot of additional information on that and we

8:24 all we will also have uh forecasts for next three years and by then

8:30 I hope we will be more sure um what will be the consequences of the last

8:36 shock uh in the economy or geopolitical uh shocks that we are facing right now.

8:42 So right now uh I would say that we

8:44 are still lacking of uh full availability of information

8:48 uh in order to to assess whether uh what

8:52 kind of monetary policy we would have to use.

8:55 That's difficult to say because uh now it's different than in 2022.

8:58 First of all, I think in 2022 we had much

9:00 more growth but we were in negative interest rate territory.

9:04 So a different starting point but most

9:06 people young people have not experienced or had

9:09 not experienced that time a longer period

9:12 of inflation or higher very elevated inflation.

9:15 Now uh the last inflation episode is only 2 three years back in time.

9:21 So people uh and also companies have experienced

9:24 that time uh and that means uh the reaction

9:27 might be different reaction times might be different

9:29 but also uh the size of the reactions.

9:32 um do we see first indications for second round effects I would say uh but uh

9:37 uh it's too early to tell to what

9:39 extent uh indeed the second round effects will be

9:42 substantial for uh the inflation outlook it all

9:46 depends and that's a difficult uh uh part of uh any assessment it all depends

9:50 on the duration of the conflict in the Middle East

9:53 oh yes we are watching this very closely because

9:55 things are still very uncertain and as I said

9:58 in terms of the global developments regard to how

10:01 long will this conflict be and the duration itself.

10:04 And second in terms of um where will all price land and even if

10:08 the conflict were to end in the next couple of weeks but we expect oil

10:12 price to remain longer higher for for longer and how does this fits in through

10:17 in terms of global uh cost conditions and from there how does this fits

10:21 into the domestic prices but again uh the subsidy that we have in the country

10:25 does help dampen the transmission and second is

10:27 that for Malaysia we are also a net

10:29 energy exporter that will in a way help us as well and third the strengthening

10:33 of the ringit will also have some

10:34 impact in terms of dampening the transmission prices.

10:37 But we are watching this very closely.